President Bush said Friday that he will offer a $17.4 billion government loan to bail out automakers and force them to modernize, but the United Auto Workers union said it will push Democrats in Congress to drop some of the conditions Mr. Bush wants to impose.
Reversing course from his previous opposition, Mr. Bush said the Treasury Department will use the financial package intended to bail out financial firms to help out the car companies, but said the automakers will have until March 31 to prove they can be viable or the loans will be called in.
Mr. Bush said the economy could not withstand the shock from a disorderly bankruptcy. He told The Washington Times in an interview that the companies will now either modernize or have time to prepare for bankruptcy.
“I said, here’s your chance; you can, on the one hand, show you’re viable — we laid out some targets; and on the other hand, if you can’t show you’re viable, at least you’ve got time to prepare for debtor possession financing,” he said.
But the UAW, which represents autoworkers, said Mr. Bush is demanding more concessions from workers than he is from other stakeholders. Union President Ron Gettelfinger said they will ask President-elect Barack Obama and Democrats in Congress to ignore the provisions.
“We will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed,” Mr. Gettelfinger said.
Democratic leaders in Congress said they will examine the deal, but agreed with the unions the terms are skewed against workers.
“The White House proposal unfortunately singles out workers and clearly puts them at a disadvantage before negotiations have even begun,” said House Speaker Nancy Pelosi, California Democrat, though she praised Mr. Bush for taking action.
Many Republicans said the bailout was a bad move, arguing Mr. Bush should have imposed still more conditions on the companies. Sen. Jim DeMint, South Carolina Republican, said Mr. Bush’s action may be unconstitutional because Congress never authorized using the $700 billion Troubled Asset Relief Program, intended for financial institutions, to bail out specific nonfinancial companies.
Senate Republicans last week led a filibuster that blocked a bill to extent about $14 billion to automakers. That bill, a compromise between the administration and congressional Democrats, would have tapped non-TARP funds because Mr. Bush wanted the TARP money to be kept for financial institutions.
With the failure of the bill, though, Mr. Bush said Friday that he had to reverse course and use what money he could.
“These are not ordinary circumstances,” he said. “In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action.”
Mr. Obama was silent on specifics, but said Mr. Bush took “a necessary step” and echoed the president’s declaration that there is a limited window for the companies to act.
“The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely required to save this critical industry and the millions of American jobs that depend on it,” he said.
The loan is split into $13.4 billion initially, and an additional $4 billion to come if the White House requests — and Congress releases — the final half of the TARP money.
It’s not clear what Congress will do if the White House does make such a request. Members of both parties have been critical of how Mr. Bush’s administration has spent the money.
One Democratic aide said by then, Mr. Obama will be in office and Democrats will be more open to releasing the money. But Rep. Thaddeus McCotter, Michigan Republican, who supported the auto bailout, said the $13.4 billion was the key number and Republicans won’t feel obligated to approve the next installment of TARP money.
“There’s going to be serious questions about the first round, let alone the second one,” he said. “I don’t necessarily think tying the $4 billion into the second one does anything.”
Of the initial $13.4 billion Chrysler LLC will receive $4 billion and General Motors Corp. the rest. The future $4 billion would also go to GM. The third big automaker, Ford, is in better financial shape and did not feel it needed to access the loans, the White House said.
Among the terms attached to the loans are that firms must limit executive compensation and perks such as corporate jets, allow the government to block any transactions larger than $100 million, reduce unsecured debt by two-thirds and restructure union contracts so they are competitive with foreign auto manufacturers’ contracts by Dec. 31, 2009.
Any of those conditions could be changed under Mr. Obama if his Treasury Department and the auto companies agreed.
The auto bailout has split Republicans, with those from Midwest industrial states saying the action was needed because bankruptcy is not an acceptable option, while many of those from southern and western states opposed it as an overreach and said the government didn’t wrest enough conditions to make the companies viable.
Mr. McCotter said the UAW’s stance is the beginning of a new round of positioning.
“What you’re starting to see is people starting to stake out their negotiating positions before they get in the room,” he said.
He also said Mr. Bush’s move will play well among a large group of Republicans in the Midwest who were afraid of the alternative to government loans.
“President Bush, being a southern Republican president doing this bridge loan, was helpful,” said Mr. McCotter, who had opposed the $700 billion financial bailout. “A lot of the people around here were surprised he didn’t just let the industry go bankrupt.”